DynaCITY introduces a new paradigm in sustainable and inclusive urban transformation by developing an AI-powered, participatory Digital Twin framework tailored to the complex needs of cities transitioning toward climate neutrality. Aligned with the Horizon Europe and MISSION strategies, DynaCITY delivers a modular, interoperable, and privacy-compliant ecosystem that integrates real-time data, immersive XR technologies, and advanced simulations to support evidence-based urban planning, citizen co-creation, and cross-sectoral collaboration. The project addresses the urgent need for tools that enable cities to anticipate, design, and evaluate interventions across mobility, land use, energy, and infrastructure—especially in contexts facing demographic shifts, climate stress, and digital fragmentation. DynaCITY introduces three core technological modules: XModel, a simulation engine for predictive scenario analysis; XDesign, an intuitive co-creation interface that empowers citizens and planners alike; and XEngage, a participatory platform fostering inclusivity and stakeholder feedback. Through five diverse urban pilots—Heidelberg, Lund, Menton, Funchal, and Beirut—the project will demonstrate measurable impact on emissions, public space redesign, resilience, and citizen trust. DynaCITY also ensures scalability and replication through integration with the EU Local Digital Twin Toolbox, CitiVERSE-EDIC, and Common European Data Spaces. By bridging cutting-edge technology with inclusive governance, DynaCITY sets a European benchmark for how digital twins can drive just, resilient, and climate-neutral urban futures.